Independence Day 2008

For me, birthdays are a time for looking back as well as forward. After the traditional joyous “Happy Birthday to You” chorus usually comes the insistent “How Old Are You Now?” line. “How Old Are You Now?” “How Old Are You Now?”

Confronting that question has a way of focusing the mind in the nature of a taking stock exercise. What has been accomplished thus far and what remains to be done? What promise has been realized? What promise thus far unrealized?

With the approach of this July 4th, perhaps especially because it is a quadrennial election year, I have been thinking of America’s birthday in terms not unlike the way I think of my own. “America, how old are you now?”

Two hundred thirty two years old if you reckon from July 4, 1776. Or even if you prefer 1788, when New Hampshire became the ninth state to ratify the Constitution, still old, by most accounts. Old, indeed. But I have had fixed in my mind of late counting another way. And by this reckoning America seems very young.

Think of America in this way. When I was born in 1946, there were still Americans living who were born during the Civil War. It’s true. I recall as a young man reading their obituaries in the newspaper. And when those Americans were born during the Civil War, there were still many Americans living who were born during the Revolutionary War, some of whom who were born in 1776, in America’s birth year. Viewed this way, America is only three lifetimes old. Or, more truly, three lifetimes young.

I’ve been turning over this thought in my mind for a week or so now – America as 232 years old, or America as three lifetimes young. I can see America through both lenses. But ever the glass-half-full optimist, I think I prefer three lifetimes young.

To be sure, at the Founding, for all its promise and ideals, America was a construct in which the gap between aspiration and reality was monumental. A nation that proclaims in its ringing Declaration of Independence that “all men are created equal” and sanctions human bondage in its Constitution of 1787 is built on a contradiction that must be eliminated. The elimination took the shedding of the blood of brothers and much more so that the Union could continue the journey towards fulfilling the promise of the Founding ideals.

The flaw in America’s original construct should never be ignored or forgotten. But neither should the promise of the Founding ideals ever be forgotten, or the achievement of the Founders be diminished. For the ideals were as monumentally important, for America and the world, as the gap between aspiration and reality.

So, on this Independence Day, I opt to think of America as only three lives young, rather than 232 years old. Either way, I think of America as a Republic always looking forward – towards a future full of promise in a never-ending quest to secure the rights of “Life, Liberty, and the pursuit of Happiness.” As the Declaration announces, it is to secure these inalienable rights that “Governments are instituted among Men.”

The Constitution’s preamble says we bound ourselves together in order to form a “more perfect” union, not an already perfected one. The Free State Foundation’s website proudly proclaims the Foundation’s purpose to promote, through research and education, free markets, limited government, and rule of law principles. To my mind, these fundamental principles are central to preserving the rights of life, liberty, and the pursuit of happiness that is the core object of our constitutional commitment. And they are central to the success of America’s constant striving to become a more perfect union.

So, on this Independence Day 2008, it is appropriate to recognize how much of America’s promise already has been fulfilled, how much already has been accomplished. But there is much more work to be done in a still young nation that ever will be in the process of becoming a “more perfect” union.

Happy Birthday America!

Eleven Point Four. We Won't Pay!

“Eleven Point Four. We won’t pay!
Eleven Point Four. No way, no way!”

You could almost hear – or maybe it was my imagination – a background chant at Tuesday’s hearing on the “Future of Universal Service” convened by Rep. Ed Markey in his capacity as Chairman of the House Subcommittee on Telecommunications and the Internet.

All consumers now pay an 11.4% surcharge, in effect, a tax, on all interstate telephone calls. This tax funds the various universal service subsidy programs. In 2000, the tax was 5.5%. I got the sense at Tuesday’s hearing that at some point between 5.5% and 11.4%, a threshold, a Universal Service Rubicon of sorts, was crossed. Because it seemed clear from statements at the hearing that a bipartisan consensus is developing that the current regime is broken and needs meaningful reform. Many of the committee members who spoke, including significantly Chairman Markey, referred to the 11.4% surcharge on all calls as an impetus for getting on with the business of reform. Consumers finally have begun to pay attention to the size of the dollar amount of the item typically denominated as “Federal Universal Service Charge,” or some such, on their bills.

Chairman Markey is to be commended for holding a future-oriented hearing on universal service. As a hearing witness, I offered the committee some key guiding principles for reform and some specifics for applying them in today’s competitive and rapidly-changing technological environment. The principles are pretty simple but fundamental: Market forces, rather than subsidies, should be relied on to the greatest extent possible to achieve the universal service objectives. If there are to be subsidies, they should be targeted narrowly and financed broadly. The current regime is at odds with these principles, which is why, despite more competition and new, less-costly technologies, the surtax on telephone calls has climbed to over 11%. You can read my full testimony here.

With an apparent emerging consensus that the current regime largely has achieved the goal of making voice service ubiquitous – universal, if you will – the hearing, quite appropriately, focused mostly on broadband. The question is whether broadband service should now be brought into the existing universal service subsidy regime, or one similar. I addressed this question in my testimony. I pointed out that, without any significant government subsidies, market forces already have worked to make broadband service widely available to the American public. I urged policymakers to “retain this minimally regulated environment that has encouraged so much private sector broadband investment in a relatively short time.” And, if policymakers determine that some subsidies nevertheless are desirable to achieve more ubiquitous deployment at a faster rate, I urged they be distributed through some form of competitive bidding process that narrowly targets disbursements only to unserved high-cost areas or low income persons. Any such subsidies should be financed through general Treasury appropriations.

At bottom, I urged: “Any broadband subsidies deemed necessary should not be disbursed or financed through an unreformed universal service regime that resembles the existing one. To do so would perpetuate a system that is economically inefficient, wasteful, and competition-suppressing. It would saddle the broadband world – and the American public – with an outdated relic of the narrowband world.”

Finally, another indication of what I take to be the gathering reform momentum is the bill introduced by Reps. Joe Barton and Cliff Stearns on the day of the hearing. Rep. Barton is ranking member of the Energy and Commerce Committee and Rep. Stearns ranking member of the Telecom subcommittee. To my mind, their “Universal Service Reform, Accountability, and Efficiency Act of 2008” is the most reform-minded, consumer-friendly universal service bill ever introduced. It deserves very careful consideration. Most importantly, the Barton-Stearns bill would not bring broadband into the existing subsidy regime, with all of its competition-distorting rules and built-in inefficiencies. With respect to narrowband, recognizing that the goal of universal voice service largely has been achieved, the bill would cap the universal service funds at their current sizes. Among other things, it would substantially change the subsidy distribution method to incorporate competitive bidding mechanisms for high-cost areas without affordable service and curtail subsidies presently going to high-income areas. (Aspen is the proverbial example of a high-income area that currently receives substantial subsidies under the current regime.)

Chairman Markey deserves credit for holding a hearing on “The Future of Universal Service” at which a serious conversation about serious reform was begun. And Reps. Barton and Stearns deserve much credit for fashioning a bill that ought to contribute significantly to pointing the way forward.

“Eleven Point Four Percent. We won’t pay!
Eleven Point Four Percent. No way, no way!”

Maybe the background chant I was hearing during the hearing was all imagined. But my sense is that something has changed, that the consumer’s “pain at the phone” threshold has been crossed. And that, as a result, there is now an opportunity for meaningful universal service reform that leads to a less costly, more efficient system that is also much less competition and technology-distorting than the existing regime.

Communications Policy in the Next Administration

As in other areas, the differences between the communications policy visions of Barack Obama and John McCain are stark, at least as presented by their surrogates at this week's Federalist Society debate at the National Press Club. And the surrogates are no newcomers to communications policy -- former FCC Chairman Reed Hundt representing Obama and former FCC Chairman Michael Powell representing McCain. You can find the audio and video for the debate here.

There were some sharp partisan jabs, mostly by Reed Hundt, which struck me as a bit at odds with his candidate's professed notion of trying to reach out to all sides and transcending "politics as usual."

But putting aside the entertainment value of the debate's sharpness, for those interested in the future of communications law and policy the debate was very instructive. There is no doubt that Mr. Hundt presented Obama's vision as one in which traditional analog-era regulation plays a much more prominent role than it does in McCain's. This difference in the willingness to maintain (or in some instances re-impose) regulations put in place long ago in the twentieth century's monopolistic communications environment ran throughout the debate.

Here I'll just highlight one instance in which I think the difference in regulatory philosophy is particularly stark, and important -- in the way in which the two surrogates approach the net neutrality controversy. Mr. Hundt enthusiastically embraces what he called the "broadband future-oriented modern version of common carrier," with an "absolute rule against discrimination." Mr. Powell vigorously disagreed, saying that adopting Mr. Hundt's common carrier regime would amount to "the first fateful step of inviting the federal government towards regulating the Internet." Responding to Mr. Hundt's embrace of the need for net neutrality legislation that strictly prohibits discrimination, Mr. Powell said at this point it is "far from clear what problem you are trying to solve," and that the "consequences of empowering legislation around difficult technical and architectural questions is dangerous." While not denying there could be instances of anticompetitive conduct that should be addressed, Mr. Powell said, "the better approach in a new and vibrant market is to put greater emphasis on an enforcement model, an antitrust model." For the core of the back-and forth regarding net neutrality, you can tune in beginning around the 26 minute mark of the replay.

Mr. Hundt is at least forthright in conceding net neutrality mandates are simply another name for a traditional common carrier regime. Some net neutrality advocates shy away from doing this for fear such directness harkens too much to the past. I have explained on many previous occasions why such a regime, with rate regulation and a no-discrimination prohibition at its core, is not an appropriate model to apply on a forward-looking basis to broadband Internet providers in today's competitive communications environment. Perhaps this model was appropriate for the railroads in the nineteenth century, and for AT&T throughout much of the twentieth century, although respected scholars such as Bruce Owen, a member of FSF Board of Academic Advisors, have serious doubts. (See Bruce's scholarly essay on this point here.) But relatively fewer scholars in the field of regulatory law and economics share Mr. Hundt's (and Obama's) view that the Internet should be subject to a public utility-style common carrier regime.

Anyway, as they say, the debate speaks for itself, and tuning in is a worthwhile way for all those interested in communications policy to spend an hour or so.

Maryland’s Budget System: An Imbalance of Power?

In 1916, the citizens of Maryland approved a budget system that gave primary budget authority to the Governor. Almost a century later, the debate continues about whether the legislature gave away too much of its power and should ask the citizens to restore it.

Those who argue that it is time to increase legislative authority maintain that more legislative power would allow more citizen participation and flexibility into the budget process. I believe that the General Assembly already has significant budgetary power and that allowing the General Assembly to rearrange the Governor’s budget would exacerbate Maryland’s spending problem (often referred to as the structural deficit). As noted in the September 18, 1916, issue of the Baltimore Sun by William Milnes Maloy, one of the members of the Goodnow Commission that recommended the current allocation of budgetary responsibility, “If the Maryland legislator served his State as well as he serves his county or district, a budget system would not be necessary in Maryland. …it must be said that most of the members of Parliament, of Congress and of every State Legislature in the Union are more mindful of the public interests of the localities they respectively represent than of the general welfare of the nation or the State.”

You can read my arguments and those on the other side by Prof. Roy Myers in a new report issued by The Maryland Budget and Tax Policy Institute, a project of the Association of Maryland Non-Profits.

Broadband Policy, Dollars and Sense

The United States has had a generally deregulatory broadband policy since 2002 when the FCC declared that broadband services “should exist in a minimal regulatory environment that promotes investment and innovation in a competitive environment.” Despite the fact that, since 2002, the broadband marketplace has continued to become more competitive and broadband services more ubiquitous and innovative, the FCC has not adhered in a consistent fashion to its declared deregulatory posture. When it has strayed, the results have not been good.

Take the recent 700 MHz auction of spectrum for wireless broadband services. FCC Chairman Kevin Martin insisted a portion of the spectrum to be auctioned be encumbered so that the auction winner would be required to use the spectrum consistent with net neutrality principles. The spectrum would be an “open access” zone in which all content, applications, and devices would be required to be treated on a “non-discriminatory” basis. With 80 years of common carrier non-discrimination regulation as historical context, potential bidders knew a regulatory quicksand pit when they saw one. The result: The auction bids fell way below the FCC’s reserve price, and the spectrum block, so-called prime real estate for advanced wireless services, will continue to lay fallow. And, in the meantime, the U.S. Treasury is deprived of the funds that would have been realized in an unencumbered auction.

Now Chairman Martin apparently is proposing another encumbered auction for another chunk of spectrum that can be used to provide broadband services. This time the auction winner would be required to offer a “free” broadband service of some bandwidth capacity to some percentage of the nation’s population over some future build-out schedule. And, for good measure, this free service would be required to filter out “indecent” programming.

The FCC should have learned its lesson from the 700 MHz auction. It is unsound public policy to encumber spectrum auctions in this way, rather than auctioning the spectrum on an unencumbered basis that allows market mechanisms to work properly. The spectrum is devalued, and U.S. taxpayers lose. And the FCC establishes a regime that will, assuming a bidder meets whatever “reserve price” the Commission in its wisdom sets, will invite, nay, ensure, regulatory scheming and litigation over the “free” block rules far into future. There will be attempts by all interested parties to use the regulatory process to game the regime, with ongoing battles over bandwidth requirements, the build-out schedules, and the interpretation and enforcement of the “indecency” regulations. What about a waiver of this rule? Why not a waiver of that rule? For how long? Pretty please! Any casual observer of the FCC’s regulatory history knows this to be true and understands the troubles such encumbrances promise.

Like virtually all goods and services, broadband capacity is “scarce.” Indeed, it takes huge capital investments to build-out broadband networks, and once built-out, unless periodically upgraded and modernized, they quickly can become less than the moving target that is called “state-of-the art.” It is important, therefore, that regulators allow the broadband market, like other competitive markets, to work in a way that uses price signals to respond to changing consumer demand. Of course, a zero-price of “free” is no price signal at all.

U.S. broadband penetration has been remarkable over the last several years, with over a 100 million lines now in service, and broadband service available in over 99% of the zip codes in America. To be sure, these figures do not demonstrate that broadband service is ubiquitous, or that everyone who would like broadband, has it, or even that those that have it, have as much bandwidth capacity as they would like today or tomorrow. There is still more progress to be made, and, truth be told, there most likely always will be with respect to ever-increasing demand for more bandwidth.

If policymakers determine that measures are needed to address broadband penetration or usage rates in certain high-cost geographic areas or among certain low-income persons, any such measures should be carefully and narrowly tailored to address those areas or persons in the most economical and efficient manner. But to continue the progress already made, policymakers should not abandon market mechanisms for regulatory encumbrances, whether they happen to be in the form of requirements for “free” service, “open access” zones, or “net neutrality” mandates.

In a not unrelated development, Time Warner announced earlier this week that will experiment in a few markets with plans that tie bandwidth usage to price. In other words, heavy users would be required to bear more of the burden for the capacity demands they place on Time Warner’s network than light users. In another context, this is just a variation of the point made above – that in a competitive marketplace, price signals must be allowed to allocate a scarce resource if overall consumer welfare is to be enhanced. Hopefully, the pro-net neutrality crowd won’t be allowed to derail such pricing experiments or plans if they prove to be a sound way to address network management issues and capacity constraints.

Reforming the Sunshine Act

There are many things, large and small, that should be done to reform the FCC in an institutional sense. They range, on the one hand, from major substantive changes to the Communications Act that would require the agency to rely more heavily on a competition-based standard rather than the indeterminate public interest standard, to various process-oriented reforms that the Commission could accomplish on its own.

At last week's Cable Show in New Orleans, amidst all the discussion of substantive issues like net neutrality, leased access, and whatnot, FCC Commissioner Copps again talked about the negative impact of the Sunshine Act on the Commission's decisionmaking process and the agency's sense of collegiality. He reminded the audience that he and then-FCC Chairman Michael Powell had sent then-Senate Commerce Committee Chairman Ted Stevens a letter in February 2005 urging that the Sunshine Act be amended to allow the commissioners to deliberate together outside of public meetings.

When Commissioner Copps renewed his plea at last week's Cable Show, he suggested that, rather than amending the Sunshine Act on a permanent basis and for all agencies, Congress might authorize changes in the Act on a trial basis. The notion of changing any jot or tittle of the Sunshine Act is not popular among the press, even though its failings have long been obvious to many others, including academics of all stripes who have studied the issue extensively. Commissioner Copps deserves credit for continuing to raise the issue.

In 1995, I chaired a special committee of the Administrative Conference of the United States ("ACUS") that recommended, after taking testimony from many agency witnesses and interested members of the public, that Congress authorize a pilot program which would allow agency members to meet in private provided the agency requires that such meetings be memorialized by a detailed summary of the meeting to be made public no later than five working days after the meeting. The ACUS report and a brief law review article I published introducing the report are here.

The ACUS report laid out all the familiar reasons why administrative law scholars and many close observers of agency behavior have urged that the open meeting law be modified, and I will not repeat the report here. This excerpt captures a good part of the argument:

"[A]s a practical matter, it is at least arguable that the Sunshine Act produces an effect contrary to one of Congress’s principal purposes for its enactment: creating multi-member agencies to obtain the benefit of collegial decisionmaking from persons who bring to the decisionmaking process different philosophical perspectives. experiences, and expertise. Unable to deliberate together in private, agency members resort to communicating with each other in writing, through staff, or in one-on-one meetings with other members (assuming the agency has more than three members so that even one-on-one meetings are allowable). Obviously, these indirect means of communication are not conducive to fostering collegiality in the same sense that it is fostered when all agency members are able to engage in a simultaneous collective discussion."

A principal impetus for initiating the ACUS study back in 1995 was that all five FCC commissioners signed a letter asking that the study be performed because they were concerned the Sunshine Act adversely impacted the quality of agency decisionmaking. I understand that it is difficult to get Congress to modify the Sunshine Act. But if all five FCC commissioners once again signed on to a joint letter asking Congress to authorize a trial for a limited period for only the FCC, Congress might well be receptive to such a pilot program. The trial could be limited to rulemakings and require that any closed door meetings be memorialized in a summary of the meeting to be placed in the public record.

I hope Commissioner Copps will draft such a joint letter, take this idea to his colleagues, and secure agreement from all. No one disputes the notion that the FCC ought to function in a way that fosters collegial decisionmaking, consistent with holding agency members accountable for their actions. To that end, the agency's members ought to act collectively to urge Congress to authorize a limited trial to determine if modifying the Sunshine Act will indeed promote such collegiality and improve agency decisionmaking, while still maintaining public confidence in the integrity of the Commission’s processes.

Memorial Day 2008

It is hard for me to think of Memorial Day without Abraham Lincoln injecting himself into the same stream of thought. After all, the first Memorial Days, then called Decoration Days, arose shortly after the Civil War ended to honor the Union’s war dead. The celebration held on May 5, 1866, in Waterloo, New York, is often credited with being the first official Memorial Day commemoration. (Napoleon take note!)

Lincoln can inspire in many different ways. But as I contemplate Memorial Day 2008, with a presidential election at hand, I am reminded that after winning the presidency, Lincoln brought into his War Cabinet all of his principal rivals for the Republican nomination. And then he added a few Democrats for good measure. He did so knowing full well that in every instance these men considered themselves – wrongly, as it turned out – to be his superiors.

Doris Kearns Goodwin tells the tale of Lincoln’s cabinet in her magnificent Team of Rivals. Her book gives us a new appreciation for an aspect of Lincoln’s character rare in politicians of any age, and certainly not always abundantly in evidence today -- the willingness to reach out to political opponents and seek common cause to advance the public’s interest, rather than self-interest.

In arduously melding his “team of rivals” -- a group of disparate personalities with conflicting loyalties -- into an effective governing unit, Lincoln had two paramount goals: first, save the Union, and, second, lead the nation to what he called in Gettysburg “a new birth of freedom,” meaning, in that time and place, emancipation of the slaves.

In our time and place, on this Memorial Day, and on all Memorial Days since the first, are there really any national objectives more paramount than preserving the Union and the individual freedom for which America has come to stand? To be sure, even since the Civil War, here in America such freedom certainly has not always been enjoyed by all, or enjoyed perfectly in the same way. But is there a country other than America that more truly embodies the spirit of the liberty principle for which the Civil War was fought, for which so much blood was shed to preserve the Union? I think not.

At a time when America finds itself still at war, with our brave soldiers fighting and dying abroad, it should not be too much to hope that, in this election year, our political candidates at all levels might adopt a more Lincolnesque posture. Without compromising on matters of fundamental principle, it ought to be possible in difficult times to seek common cause with rivals whose politics differ. Considering the bonds that bind together all Americans, this is especially true on matters relating to protecting America’s security and the freedom which that security enables.

Sandwiched between the crowning of the latest American Idol and the first trip to the beach or first backyard barbeque, it is all too easy to forget Memorial Day’s true meaning. But let’s don’t. This Memorial Day, as each year, let us remember all those who have shed their blood fighting under America’s flag, and, as Lincoln put it at Gettysburg, “resolve that these dead shall not have died in vain.”